The cash rate has gone up four times this year, from 3.60% in January to 4.60% after the Reserve Bank’s decision on Tuesday 29 September, and home values have now fallen for six months in a row. So how are mortgage holders actually going? The RBA’s half-yearly Financial Stability Review, released on Thursday 1 October, says most are still coping. Arrears are low, savings buffers are large and very few borrowers owe more than their home is worth. There are pockets of stress, though, and it’s worth knowing who’s in them.
The short version
- The cash rate is 4.60%. The big four’s variable rates go up by the full 0.25 from this Friday, 9 October.
- About 2% of variable-rate owner-occupiers have a cash-flow shortfall, meaning their income doesn’t cover their scheduled repayments plus essential spending. That’s up a little this year but still “relatively low”.
- Housing loans more than 90 days behind are up a little this year but still around pre-pandemic levels.
- The median borrower has enough in offset and redraw to cover more than a year of scheduled repayments.
- Fewer than 1% of borrowers owe more on their loan than their property is worth.
What the RBA found
The RBA’s overall view is that Australia’s financial system has “a good degree of resilience”, and that most households with a mortgage remain well placed to manage tougher conditions, even if housing prices were to fall sharply. The banks are well positioned to keep lending, even in a downturn.
On cash flow, the RBA estimates that around 2% of variable-rate owner-occupiers are in a shortfall. Most of them have savings that could cover the gap for at least six months if they cut spending back to essentials. Based on the RBA’s August outlook, that share is expected to stay around its current level of a little under 2% for some time, well below the 2024 peak.
On equity, fewer than 1% of borrowers are estimated to be in negative equity. The RBA also ran a scenario where prices fall a further 20% across the board. Even then, only around 5% of mortgages would slip into negative equity. That’s a stress test, not a forecast.
What “resilient” doesn’t mean
A healthy average can hide a tough household budget. The RBA says arrears are higher for borrowers on lower incomes, with high loan-to-value ratios (LVRs) or with large loans compared with their income. Lower-income borrowers are also more likely to be among those with a cash-flow shortfall, and many households in that group have already cut back to mostly essentials, sold assets or worked extra hours to keep up. Recent buyers and those with small deposits are more likely to be in negative equity, including first home buyers who used the 5% Deposit Scheme, although the RBA says arrears and hardship among scheme participants remain contained.
The RBA also tested a very severe downturn: unemployment rising to 6.3%, inflation to 7% and the cash rate to 5.6%. In that scenario, around 5% of borrowers would be at higher risk of default, only a little above the 2023 peak. Again, that’s the RBA’s worst-case modelling, not a prediction.
Outside households, the Review flags rising risks from geopolitical tensions, vulnerabilities in global financial markets, cyber threats, advances in artificial intelligence and disruptions at critical service providers.
Lending rules aren’t changing
The RBA supported APRA’s decision to keep its lending settings unchanged. That includes the serviceability buffer, which means lenders still check that a new borrower could manage repayments at a rate 3 percentage points above their actual loan rate. New high debt-to-income lending remains well below APRA’s 20% limits. The share of new loans written on interest-only terms has risen over the past year, but the RBA says that isn’t a cause for concern on its own.
For anyone applying now, that means the bar is the same as it’s been: if you’re borrowing at around 6.3%, the bank will test your budget at around 9.3%.
What this looks like on a real loan
Illustrative example only. Take a $600,000 loan over 30 years with principal and interest repayments. If your lender has passed on all four of this year’s rises in full, your rate is about 1 percentage point higher than it was in January. Going from 5.34% to 6.34% lifts the monthly repayment from about $3,347 to about $3,730, roughly $383 a month more. A year of repayments at 6.34% is about $44,750, which gives you a sense of what the RBA means by the median borrower’s buffer covering “over a year” of payments. Your own loan size, term and rate will give different numbers.
For what Friday’s 0.25 rise adds on its own, see our big four pass-through article. If you’re weighing up fixing, our fixed-rates article explains why fixed rates have risen faster than the cash rate. And for prices, Cotality’s figures show national values fell 1.1% in September and are 5.2% below the March peak. Our home values article has the city-by-city breakdown.
What to check this week
- Your new repayment. Look for your lender’s notice about the rise from 9 October (Macquarie’s applies from 15 October) and check the new amount against your budget.
- Your buffer. Add up what’s in your offset and redraw, and work out how many months of repayments it would cover.
- Your direct debit. If you pay a fixed amount you set yourself, make sure it’s still at least the new minimum.
- Your rate. If you haven’t compared your rate in a while, it’s worth checking what other lenders would offer you.
- Don’t wait if it’s tight. If the new repayment doesn’t fit, call your lender early. Lenders have hardship processes, and it’s easier to sort things out before you miss a payment than after.
The RBA’s next cash rate decision is on Tuesday 3 November.
Is Friday’s rise making things tight?
If the higher repayment or the size of your buffer doesn’t feel comfortable, book a chat. We’ll start with general information, and if you want personal recommendations we’ll do a proper fact-find first. There’s no cost and no pressure.
Sources: Reserve Bank of Australia, “Release of Financial Stability Review – October 2026”, media release 2026-28, 1 October 2026. Reserve Bank of Australia, Financial Stability Review, October 2026, Chapter 2 “Resilience of Australian Households and Businesses” (cash-flow shortfall, arrears, buffers, negative equity, scenarios, lending standards and macroprudential settings). Reserve Bank of Australia, “Statement by the Monetary Policy Board: Monetary Policy Decision”, media release 2026-27, 29 September 2026, and RBA cash rate target history (2026 increases). Macquarie Bank, “Macquarie Bank’s response to the RBA’s interest rate decision”, 29 September 2026 (variable rates from 15 October). Cotality Home Value Index, 1 October 2026. Repayment example calculated by Loan Worth using the standard amortisation formula.
General information only, not credit advice. It doesn’t take your objectives, financial situation or needs into account.
Loanworth Pty Ltd (Credit Representative Number 547934) and Kym Tram, trading as Loan Worth (Credit Representative Number 498798), are Credit Representatives of Connective Credit Services Pty Ltd (Australian Credit Licence 389328).